This is actually pretty interesting to see, because I think what's happened here is just that Nationstates provides something nothing else can. And it doesn't even provide it well, but it stands after all these years because of it.
Everyone there clearly really wants to roleplay an entire nation, and there's nowhere else to really do that to this level of creativity. All city/nation/empire building games are really gameplay-heavy with very little in the way of room to let you make 'your' world; this is light enough that you're actually able to exert that creativity. Hell, when Nationstates came up in our games forum, I contemplated taking part for exactly that reason, and was going to make my nation 'the land of contrived/supernatural coincidences that all fetish stories are set in'. I had way too much fun envisioning how that actually worked (their borders initially expanded rapidly because neighboring states were too skeeved out to get close, and the wanton transformation and mind control causes health and social care to be both very confusing and lenient), and Nationstates is kind of the only place to be that... specifically creative.
Yet at the same time, I noticed something that I think happened to the place's roleplaying community that I've seen elsewhere: the godmoders muscled out the reasonable people. The people with reserved or realistic play-countries just aren't there anymore, because it's really hard to play out that sort of thing when you're there alongside someone whose response to ISIS is to reduce the entirety of the Middle-East to a pile of goo. I've seen that in other freeform RP stuff, particularly in MMOs; if you introduce weaknesses or nuance, you just get outpaced and outvolumed.